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Webinar Archive Presentation

Presentation time: 1 hour

What does the Ministry of Social Development take into account when it conducts financial means assessments? What is excess gifting? How does the abolition of gift duty affect my client?

Clients usually have very definite ideas about what they would like to achieve from their asset planning approach. However, practitioners are often not fully aware of the statutory requirements of means assessments for residential care subsidies, or that there are differences between these and IRD’s general requirements. These differences may impact on subsidy eligibility.

This webinar will help you manage your clients’ expectations about what trusts, gifting and property agreements can and cannot do in relation to subsidies. It will prepare you to advise clients how the asset planning option they choose now may affect them over time.

Booklet

Introduction

As soon as gran or granddad gets a bit doddery, a trust is formed to put family assets out of reach of a government keen to reclaim both retirement home and palliative care costs[1]

At any one time around 19,000 older New Zealanders receive a Residential Care Subsidy (RCS) to help with the costs of their personal long-term residential care in a private hospital or a rest home. About a quarter of those have undertaken some degree of asset planning,[2] and that proportion is anticipated to rise. In terms of the nature of the asset planning, New Zealand has a disproportionate number[3] of discretionary family trusts compared to other countries.[4]

There are good reasons for setting up a family trust, but if an older person wants to do so in order to qualify for subsidy, they may be well advised not to. The advice people receive on asset planning has the potential to impact hugely on them when they or their partner face going into residential care. Establishing a trust close to an age when people may need residential care may be of little or no benefit and in some cases will leave them worse off. In some cases, people may find that they will have to reverse the trust in order to qualify for government assistance.

RCS is available to people who have limited income and assets. It is funded by the Ministry of Health (MOH) through District Health Boards (DHBs). If a person has been assessed as requiring long term residential care by a DHB service assessor, and wishes to apply for RCS, they need to undertake a Financial Means Assessment (FMA).

The Ministry of Social Development (MSD) carries out this assessment of financial means on behalf of the MOH. As a consequence, MSD regularly sees people who are adversely impacted by legitimate asset planning practices. MSD may “look behind” trusts in relation to gifted assets. The effect of these “gifting amounts” may be “counted back’ into a person’s FMA, negating any perceived benefit in settling assets into a family trust. This depends on the dates of the FMA, settling the assets into the trust, and when gifting occurred.

Some people with family trusts do qualify for subsidy. Those who do may still be required to contribute any income that they may be entitled to receive from that trust towards the cost of their care, regardless of whether the trust is discretionary or has independent trustee(s).

This booklet is not intended as a “tool-box” for practitioners who wish to avoid the implications of RCS. Rather, it highlights some of the key issues in the area. MSD has traditionally been reluctant to provide general advice (which may subsequently be taken out of context). In addition, it is important to note discretion is an exercise for the judgement of the individual delegated that decision (eg the case manager). The information in this booklet should not be treated as a substitute for clients testing their eligibility by applying.

This booklet is intended to assist advisors in future proofing their advice and managing client expectations as to what asset planning can and cannot achieve in relation to RCS. It will provide relevant information on the law and policy in the area for advisors to consider, but does not cover all aspects of law and policy.

All references to the Act and the Regulations are to the Social Security Act 1964 (the Act) and the Social Security (Long Term Residential Care) Regulations 2005 respectively. The relevant portions of the legislation have been attached at Appendix 1 and 2 for ease of reference.

The authors are operational staff of MSD and this booklet represents their understanding of MSD’s policy at the time of this presentation.

The law and policy for RCS does change from time to time, in response to cases, legislative change and government policy direction.

[1] Extract from a New Zealand Herald Article dated 17 June 2011 by Nick Smith.[2] Approximately 10.2% of applications received by the Specialised Processing Services (the RCS processing unit of MSD) as at January 2011 declared an involvement in a family trust. Currently it is tracking at over 12%. This figure is expected to rise.[3] As Greg Kelly noted in his opening to the 2011 Trust’s Conference (NZCLE) that, as at 2011, there were at least 400,000 trusts in NZ (up from 146,000 in 2001) with 167,925 family homes in family trusts, with over $93 billion of assets.[4] 1 tax-paying trust for every 18 people in New Zealand compared to Australia where it is 1:34, Canada 1:148 and UK 1:294 – figures from a New Zealand Herald Article dated 17 June 2011 by Nick Smith.

PowerPoint Presentation

These are the slides included in the webinar presentation.
Number of Slides: 54

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